The Procurement Process | An Introduction to Strategic Sourcing | Back to Basics

The Procurement Process | Strategic Sourcing | Back to Basics

Posted December 12, 2023 | Updated March 22, 2026
Authored by Hilary J. Schmitt, SCMP
S&Co., Supply Chain Logistics Consulting
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Use Strategic Sourcing as your ‘Supply Chain Advantage’. An overview of the procurement process for supply chain business operations.

Most organizations treat procurement as a cost centre — a back-office function that fills orders and manages invoices. The ones that treat it as a strategic capability build a measurable competitive advantage over time.

The Procurement Process | An Introduction to Strategic Sourcing

A brief overview of the procurement process.

Procurement has evolved. What was once a transactional function — raising purchase orders, processing invoices, chasing deliveries — is now understood as one of the highest-leverage strategic activities available to business leaders. The research reflects this shift: procurement, when approached with strategic intent, becomes a driver of efficiency, profitability, risk reduction, and supplier-led innovation (Rafati & Poels, 2017).

This article is not about the mechanics of procurement — the nine-stage process, the sourcing methods, the RFPs and RFQs. Those are covered in the companion pieces in this series. This article is about the why: why procurement deserves executive attention, what six strategic functions it performs across a business, and what the difference looks like between organizations that buy tactically and those that source strategically.

“Procurement has evolved from being a simple buying function to a strategic element in supply chain management.”

— Rafati & Poels, 2017 · Value-Driven Strategic Sourcing

Business leaders focused on efficiency, cost reduction, adding value, and effective management, know that procurement is central to achieving strategic objectives.

THE BIG PICTURE

Strategic Procurement as a Nine-Stage Process

Sourcing method selection sits at stage three of a complete strategic procurement cycle. Understanding the full process helps procurement and operations leaders see where each method fits — and what comes before and after the sourcing decision.

The key to successful sourcing is to understand the requirements and business objectives for the project, to gain an understanding of the market and qualifications for suppliers, then evaluate which approach is best to achieve the desired result.

 

The procurement process involves several activities.

1. Identifying Needs:

This involves determining what is needed, establishing minimum criteria for potential suppliers, preparing a preliminary budget, and defining the project scope.

• Statement of Needs or Purchase Requisition
• Established Minimum Criteria for Suppliers​,
• Scope of Work and/or Specifications.
• Preliminary Project Budget.

2. Request for Pre-Qualification:

This involves requesting information and documentation from potential suppliers to assess their qualifications and capabilities. Then establishing pre-approvals for qualified suppliers, and creating approved manufactures and vendors lists.

• Request for Pre-Qualification (RFPQ),​
• Supplier Pre-Approvals, Vendor Data Management,
• Approved Manufactures List, Approved Vendors Lists (AML/AVL).

3. Request for Proposals or Quotations:

This is where potential suppliers are asked to provide their proposals or quotes for the required goods/services.

• Request for Proposals (RFP), or
• Request for Quotations (RFQ)

4. Bid Opening, Bid Evaluation:

This involves examining the received bids/proposals, evaluating them against set criteria, and finally selecting and awarding the contract to chosen suppliers.

• Bid Opening,
• Bid Evaluation,
• Vendor Selection,
• Contract Award and Notifications

5. Authorizations, Negotiation and Contracting:

At this stage, consent is given for the purchase, negotiations take place, and a contract is completed.

• Authorization(s),
• Negotiation,
• Contracting, and
• Management of Change.

6. Cost Allocation and Purchase Orders:

Categorical costs are assigned to cost codes, amounts are allocated according to budgets and requirements, estimates are verified, authorizations are provided, and the purchase order gets issued.

• Estimate Validation,
• Cost Allocation,
• Issue Purchase Order

7. Receipt and Inspection:

The goods, materials, or services are received and inspected to ensure they have met the contractual specifications and where applicable, the agreed Service Level.

• Inspection of Goods, Materials and/or Service Performance
• Receipt Confirmation.

8. Invoicing and Payments:

In this function, an invoice is issued by the supplier and payments are made accordingly.

• Collections, Invoicing, and Payments
• Accounting
• Financial Management.

9. Vendor Management Activities

This includes monitoring supplier performance, conducting reviews and evaluations, and seeking to improve the relationship when necessary to optimize future interactions.

• Vendor Management,
• Supplier Performance,
• Reviews and Evaluations

Download the Free Strategic Procurement InfographicThe Strategic Sourcing: Beyond Simple Buying visual maps the full nine-stage procurement process and six value drivers — available for executive briefings, team training, and procurement policy development.

View Resource →

The procurement process is a priority for organizations seeking to improve and achieve corporate objectives with strategic use of supply chain business operations.

Not all purchasing is practical to apply the strategic sourcing process, alternatives are often decided by establishing parameters for price threshold and the criticality of the procurement to the businesses final product.

Once qualified to proceed in a sourcing process the procurement will involve several activities, business leaders can use strategic sourcing to improve alignment of supplier performance with the company’s business objectives.

Procurement has a strategic role. 

And it is beyond the function of supply chain management opertations.

Procurement has evolved from being a simple buying function to a strategic element in supply chain management ^{(Rafati & Poels, 2017)}.

The function of procurement involves understanding the entire supply chain for your company and projects. From identifying qualified suppliers, to managing contractual relationships, to ensuring supplier performance meets expectations and maintains all requirements.

When approached as a strategic function for business operations, procurement adapts regular transactional processes into pivotal activities through the practice of strategic sourcing, which involves identifying and selecting qualified, reliable, and cost-effective suppliers .Procurement also contributes significantly to developing and maintaining an efficient and effective business operations. Managing cost reduction, risk mitigation, maintaining the quality and timely delivery of essential products and services.

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CONCLUSION

Why is procurement a strategic function in your business?

Supplier Relationship Management: Procurement involves fostering and maintaining relationships with suppliers, ensuring a reliable and high-quality supply of goods/services to an organization.

Negotiations and Contract Management: Procurement teams negotiate contracts with suppliers to get the best price and terms. They manage these contracts throughout their lifecycle, tracking performance, renewing agreements, and handling disputes.

Risk Management: Ensuring supply continuity is a crucial part of procurement. By managing supplier relationships and having backup plans in place, procurement teams can mitigate risks like supplier failures, price volatility, or material shortages.

Coordination: Procurement coordinates with multiple departments in an organization, ensuring the right materials/services are delivered at the right time and price, directly contributing to the efficiency of the supply chain.

Cost Reduction: Through strategic sourcing, negotiation, and vendor management, procurement can significantly decrease the cost of goods/services without sacrificing quality, thereby boosting the profitability of the organization.

Quality Control: Procurement ensures that suppliers meet certain quality standards, thereby contributing to the overall quality of final products/services offered by an organization.

As you can see, business leaders focused on efficiency, cost reduction, adding value, and effective management, know that procurement is central to achieving the strategic objectives of a company.

Rafati, L., & Poels, G. (2017, December 1). Value-Driven Strategic Sourcing Based on Service-Dominant Logic. https://scite.ai/reports/10.1287/serv.2017.0190

*Formatting, edits, and addition of subtext for repurposing the content as salescopy, assisted by artificial intelligence.

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